By Peter Nurse
Investing.com - Oil markets surged higher Tuesday, amid signs that the worst of the short-term imbalance between supply and demand may now be over.
AT 8:55 AM ET (1255 GMT), U.S. crude futures traded 13% higher at $23.14 a barrel, while the international benchmark Brent contract rose 8.9% to $29.62.
Prospects have improved for crude after the coronavirus resulted in the biggest hit to demand in decades, as some U.S. states and several countries, notably the populous nations of India and Thailand, began allowing some people to go back to work.
"Considering ... the depths of demand destruction, markets are probably inclined to take any good news relatively quickly," said Daniel Hynes, senior commodity strategist at Australia and New Zealand Banking Group.
At the same time, the major producers at the Organization of Petroleum Exporting Countries and its allies are now cutting production to the tune of 9.7 million barrels of oil a day through May and June, while shut-ins at U.S. producers are helping to ease the oversupply issue.
A recent report by data company Genscape indicated that inventories at the national hub at Cushing, Oklahoma had risen by only 1.8 million barrels last week. If confirmed by American Petroleum Institute data later Tuesday and government data on Wednesday, that would represent a sharp drop in stockbuilding from the trend of recent weeks.
Reports from individual companies continue to add to evidence of the taps being turned off. Centennial Resource Development (NASDAQ:CDEV), Parsley Energy (NYSE:PE) and Diamondback (NASDAQ:FANG) all announced sharp cuts in production for the current quarter in their updates on Monday, adding to bigger cuts announced by Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) on Friday.
Continuing the theme, French oil giant Total said Tuesday that it now expects production of between 2.95 and 3 million barrels of oil a day in 2020, a reduction of at least 5% from previous 2020 forecasts.
This led Morgan Stanley (NYSE:MS)'s analysts to suggest, in a research note, that “the greatest mismatch in supply/demand is probably behind us.”
“From here on, demand will likely improve slowly, and the supply side adjustment is likely to gather pace,” the investment bank continued. “The rebalancing will likely be drawn out and have its fits and starts but it will be rebalancing nonetheless.”
This follows on from Goldman Sachs (NYSE:GS) Monday raising its 2021 forecast for global benchmark Brent crude prices to $55.63 per barrel from $52.50 earlier, and lifting its estimate for West Texas Intermediate crude to $51.38 a barrel from $48.50 previously.